Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.
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GOOGL still seen as ‘net AI beneficiary’ despite mixed quarter
Earlier in the week, BofA Securities analysts commented on Alphabet's (NASDAQ:GOOGL) latest earnings report. The broker noted that the tech giant failed to meet higher expectations, although the company exhibited accelerating growth across all key business segments.
Moreover, analysts believe that the Google owner will continue to capitalize on the ongoing AI boom.
“While quarter didn’t deliver on high expectations, with accelerating growth across all major business lines, & commentary suggesting positive impact from Gen-AI integrations, and a strong base of AI assets, we continue to believe Alphabet will be a net AI beneficiary,” analysts wrote.
“We think cleaner expense quarters (less restructuring and legal) are also likely in ‘24. We slightly lower our PO to $173 (from $175) based on relatively stable EPS and unchanged 21x 2025 P/E multiple, and lower estimated cash balance,” they added.
Morgan Stanley ‘firmly’ overweight on MSFT
Morgan Stanley analysts stressed that with its latest quarterly results, Microsoft Corporation (NASDAQ:MSFT) once again proved it is one of the leaders in generative AI, showing a “unique ability to monetize this technology.”
“With this innovation cycle just getting started and investors already getting rewarded with 23% YoY EPS growth in FY2Q24 and further positive EPS revisions for FY24, we remain firmly OW,” the note states.
This prime position for the forthcoming GenAI wave, combined with effective management and top-tier cost efficiency, firmly backs Morgan Stanley’s prediction of an 18% compound annual growth rate in earnings per share (EPS) through fiscal year 2026, analysts said.
Raymond James downgrades AMD on valuation
Meanwhile, Raymond James downgraded Advanced Micro Devices Inc (NASDAQ:AMD) to Outperform from Strong Buy, while raising the price target to $195 from $190.
The rating cut comes due to valuation.
“At 33x 2025E EPS, our analysis suggests that the stock is already discounting ~20% unit share for AI GPUs (MI300), which is closer to our bull case,” Raymond James analysts said.
“Stock discounting $7 EPS: MI300 ramps are in early stages, and we expect multiples to compress as revenue accelerates. Assuming AMD will trade at a similar P/E as NVDA (26x on CY25) implies that the stock is discounting ~$7 EPS for 2025 vs. consensus of $5.33.”
The investment firm expects AMD's core business to generate earnings of $3.5 to $4 per share in 2025. To achieve this, AI graphics processing units (GPUs) must add more than $3 to the EPS, which corresponds to revenue of approximately $12 billion or sales of around 800,000 units, it noted.
BofA hikes Nvidia PT to $800 amid ‘compelling valuation’
Ahead of its earnings report scheduled for Feb. 21, Bank of America analysts raised the price target on NVIDIA Corporation (NASDAQ:NVDA) to $800 from $700 on Friday. The bank reiterated its Buy rating and Top Pick status on the stock, citing “compelling valuation.”
Notably, analysts anticipate a significant yet moderate increase of 3% to 5%, or $500 million to $1 billion, in both the reported FQ4 results and the FQ1 guidance.
These estimates are largely based on gains from additional supply, although this is partly counterbalanced by limitations in China and some transitional impacts before the launch of the B100 accelerator, which is scheduled for the second half of 2024.
"While a 3-5% beat would pale vs. the 10%/22% beat/raise of prior quarters and perhaps disappoint some bulls, the more measured pace will also be seen as creating more fertile ground for continued growth in CY25 and beyond," wrote analysts.
Jefferies still bearish PLTR, prefers other AI names
On Wednesday, Jefferies analysts reaffirmed an Underperform rating and $13.00 price target on Palantir Technologies Inc (NYSE:PLTR).
The setup for the fourth quarter presents a mixed picture, Jefferies said, featuring a challenging target for commercial growth that suggests the biggest quarter-over-quarter rise in more than 8 quarters, alongside more “tempered expectations” for government sector growth.
“Investor sentiment remains sharply negative and our biggest concern is multiple digestion (shares trade at 14x/11x CY24E/CY25E rev; $13 stock = 10x/9x CY24E/CY25E rev) and that the stock already embeds expectations for upside from AIP. We prefer other names for AI exposure,” they said in the note.